JERSEY CITY, New Jersey, Dec 15 (Reuters) – New York Federal Reserve President John Williams said on Monday that the U.S. central bank’s interest rate cut last week leaves it in a good position to deal with what lies ahead, adding that he sees inflation moderating amid a cooling labor market.
“Monetary policy is well positioned as we approach 2026,” Williams said at an event held by the New Jersey Bankers Association in Jersey City. With the recent easing, the rate-setting Federal Open Market Committee “has moved the modestly restrictive monetary policy stance toward neutral.”
Williams said it is “imperative” to get inflation back to 2% without “creating undue risk” to the labor market. “My assessment is that in recent months, the downside risks to employment have increased as the labor market has cooled, while the upside risks to inflation have decreased somewhat.”
Williams’ comments were his first public comments since the Federal Reserve cut its benchmark overnight interest rate by a quarter of a percentage point to the 3.50%-3.75% range on Dec. 10, in an effort to balance rising risks to the labor market with inflation levels that remain problematically above the 2% target.
Fed Chair Jerome Powell told reporters at a post-meeting news conference that what lies ahead for monetary policy is uncertain, leaving it unclear whether the central bank will lower rates again at its next meeting in late January.
‘THE LABOR MARKET IS CLEARLY COOLING’
Williams said he was more optimistic about U.S. economic growth next year as uncertainty eases and inflationary pressures moderate. He noted that the tariffs “have not impacted prices as much as I expected, adding that import levies appear to have resulted in one-time price increases that do not translate into persistent increases in price pressures.”
He said the impact of tariffs on price pressures “will be fully realized in 2026” and inflation will moderate to 2.5% next year and 2% in 2027.
He also said he expects the unemployment rate to rise to 4.5% this year, but added that with his forecast of 2.25% growth next year, “I expect the unemployment rate to gradually decline in the coming years.”
“The labor market is clearly cooling; I must emphasize that it has been a continuous and gradual process, with no signs of a sharp increase in layoffs or other indications of a rapid deterioration,” Williams said.
The Fed also announced at the end of its policy meeting last week what it called reserve management: asset purchasing, which is the purchase of Treasury bills to rebuild financial sector liquidity and ensure the central bank maintains firm control of its interest rate target. While the Federal Reserve considered the purchases to be purely technical in nature, some observers see them as a form of stimulus.